OUTLOOK '09: Higher biodiesel output to depress Asia glycerine

06 January 2009 09:40[Source: ICIS news]

By Jeremiah Chan

?xml:namespace>SINGAPORE (ICIS news)--The expected increase in biodiesel production would be key in pricing refined glycerine this year, with demand expected to remain languid against the backdrop of a distressed global economy, market sources said on Tuesday.

With the global financial market conditions remaining bleak, most market sources surveyed see little room for improvement in the glycerine market.

"The golden days of glycerine are over," as succinctly put by a senior marketing official of a Malaysian oleochemical major.

Glycerine, inclusive of drumming costs, changed hands at around $450/tonne (€333/tonne) FOB (free on board) SE (southeast) Asia mark over the past few months, down by about 75% from the peak in March 2008, according to global chemical intelligence service, ICIS pricing.

"Honestly speaking, we can’t lower the prices anymore. If prices really continue to drop, we will stop production," said an official from a glycerine producer based in Malaysia.

Most market players were pessimistic about glycerine prices although supply had tightened somewhat in recent months given reduced oleochemical and biodiesel production prompted by the crash in crude values from the all-time high of $147/bbl in July 2008.

Uncertainties abound, particularly on the mandatory blending of biodiesel that was planned to be implemented in Indonesia and Malaysia starting this year.

Increased biodiesel production would flood the market with crude glycerine supply and depress prices this year, industry sources said, as one unit of crude glycerine is produced for every ten units of biodiesel or oleochemicals manufactured.

Glycerine prices in Asia had a good start in 2008, with prices surging close to $2,000/tonne FOB SE Asia, but this proved to be short-lived. Prices headed downhill continuously from April to November 2008, with a number of contracts cancelled or in default.

The surge in crude oil values above $140/bbl last year boosted production of biodiesel, which is a feasible alternative to conventional fossil fuels, resulting in by-product crude glycerine flooding the Asian market.

The start-up of additional fatty acid and fatty alcohol production facilities in the region also exacerbated the glycerine supply glut in the region, prompting the freefall in prices last year.

Faced with the prospect of lacklustre glycerine prices in the near-term, one seller said: "We’ll just have to live with it."